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11.07.2015 admin
If you have college, medical or first-home bills, you may be able to take penalty-free IRA distributions. Retirement A» Meeting IRA Withdrawal RulesYou can't take it with you, and that definitely pleases the IRS. If you don’t have a 401k that you can borrow from, your credit cards are tapped, and your emergency fund is in need of just that -an emergency, then tapping your IRA might be the only option. If you or someone in your family is planning on going to school, you can use your IRA money penalty free to help with the cost to include: tuition, fees, books, supplies, room and boar, and required equipment. The person for whom it is a principal residence must be the owner of the IRA or a family member (within limits).
Death would seem to be the ultimate hardship and when an IRA account holder dies, the beneficiaries can take withdrawals from the account without paying the 10 percent penalty. Get free access to our Money Dominating Tool Kit, and 2 chapters of my best selling book, Soldier of Finance. Most financial planners and analysts recommend against withdrawing money from retirement accounts for anything except retirement. Some additional points to remember are that the IRA distributions need to take place during either the year you received the unemployment compensation or the following, and that the IRA distributions need to take place no later than 60 days after you have been reemployed.2.
The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. This means a $5,000 withdrawal taken by a mid-career worker in the 25 percent tax bracket would result in $1,750 in taxes and penalties. Your money sat in the account for years, tantalizingly out of reach of the IRS as it accrued tax-deferred earnings.The IRS has created tables to calculate these annual withdrawals, known as required minimum distributions, or RMDs. If you have a permanent disability you can withdraw from your 401k early and get the money you need. However, the IRS imposes restrictions on spouses who inherit an IRA and elect to treat it as their own.
Under most circumstances, early distributions from a 401K trigger a 10% penalty fee from the IRS on top of applicable income and capital gains taxes.


Health Insurance Premiums During UnemploymentIf you're unemployed and can't jump on somebody's health plan for coverage, you're probably going to be stressed out about meeting your monthly premiums. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs.
You’ll have to provide a disability letter to your 401k custodian so that they will not hit you with the 10% penalty.  You read more about 401k hardship withdrawal rules in another post. Fortunately, once you've been unemployed for at least 12 continuous weeks, the IRS lets you take a penalty-free early distribution from your IRA to cover your health insurance monthly premiums.
When asked why, I was told she thought she took enough so she didnt want to take more and had told the bank to stop taking the monthly amount out and not to place it in her bank acct for the same reason she gave me. First Home PurchasesIf the dream property for which you've been waiting so long finally becomes available and you're up to $10,000 short on the down payment, you can tap into your IRA without a penalty.As long as your total IRA withdrawal for first-time home buying is not greater than $10,000, you can even split your withdrawals over more than one year.
You can avoid the early withdrawal penalty if you use the distribution to pay for higher education costs for you, your spouse or the children or grandchildren of you or your spouse. Not only can you use these monies to buy your own home, but also to pay qualified costs of buying, building, or rebuilding a property.
Spending the money on tuition, fees, books and other supplies required for attendance will get you an exemption from the 10 percent penalty. Higher Education ExpensesWhether it is for your own education or that of your spouse, children, or grandchildren, you can take a penalty-free withdrawal from your IRA to cover qualified higher education expenses, including tuition, fees, books, supplies, and equipment required for the enrollment or attendance at an eligible educational institution.Other eligible education expenses include the cost of room and board for individuals that are at least half-time students and special needs services in connection with enrollment or attendance.
While there is no limit to the amount of your withdrawal free from the 10% penalty tax, keep in mind that your monies may count as income for the student, and may thus impact their eligibility for financial aid.5. However, IRA distributions are considered taxable income and could impact your child's eligibility for federal financial aid. Debts to the IRSUncle Sam wants so badly to collect on your unpaid taxes and arrears that he's willing to forego the 10% penalty tax on your IRA withdrawal.
However, as in all other scenarios in this list, you do have to pay applicable income taxes, including capital gains.While using part of your IRA balance to pay all or part of your tax debts may not sound that great, it's better than trying to avoid a levy.
Rollovers From Traditional IRAs to Roth IRAsUnlike traditional IRAs, Roth IRAs are funded with after-tax dollars.


You can take a penalty-free IRA distribution of up to $10,000 ($20,000 for couples) to buy, build or rebuild your first home or the first home of you or your spouse's child, grandchild or parent. For the purposes of avoiding the IRA early withdrawal penalty, the IRS considers you to be a first-time homeowner if you or your spouse did not own a home during the two-year period leading up to the home sale. Plus, once your Roth IRA has been open for at least five years, you can withdraw your contributions at any time without penalty (note that earnings on your contributions are subject to IRS penalties).If you were to transfer funds from your traditional IRA to a Roth IRA, you would pay applicable income taxes now, but no 10% penalty tax on contributions if you wait five years to withdraw those funds from your Roth IRA. If the purchase or construction of your home is canceled or delayed, put the money back in your IRA within 120 days of the distribution to avoid the penalty.Medical expenses. Each transfer has its own five-year waiting period and you can only do one IRA rollover per year.7. You can use IRA distributions to pay for unreimbursed medical expenses that exceed 10 percent of your adjusted gross income without incurring the early withdrawal penalty. Periodic Income DistributionsLast but not least, you can take penalty-free distributions from your IRA by taking a series of substantially equal periodic payments (SEPP) over your life expectancy or the life expectancies of you and your designated beneficiary.
IRA distributions can be taken without penalty to pay for health insurance for you, your spouse and your dependents following a period of unemployment. As you can see from these seven examples, there are ways for you to take an early withdrawal from an IRA without the 10% tax penalty.
If you become disabled to the point that you cannot participate in gainful activity due to your physical or mental condition, you can quality for an exemption to the early withdrawal penalty. However, if a spouse inherits the IRA and elects to treat it as his or her own, it may become subject to the 10 percent penalty.



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